Focus: Protection provided to court appointed
liquidators against personal civil claims Services: Financial Services, Disputes &
Litigation Industry Focus: Financial Services
As practitioners would know, upon appointment of a liquidator
parties are precluded from commencing or proceeding with court
action against the company absent leave of the court.1
However, what, if any, protection is provided to court appointed
liquidators in respect of civil claims against them personally?
Quite distinct from, but similar to, the protection afforded by
section 471B of the Corporations Act, the common law provides that
leave of the court must be obtained before a plaintiff can commence
proceedings against a court appointed liquidator in their personal
capacity (Leave Principle). The recent decision of
the Supreme Court of Victoria in Armitage v Gainsborough
Properties Pty Ltd2 (Armitage)
examines the foundations of the Leave Principle and the
circumstances where a liquidator may seek refuge within its
In April 2004, the Liquidator of two related companies,
Chairmakers Pty Ltd (Chairmakers) and Colorclad
Pty Ltd (Colorclad), disposed of a forklift and an
autophoretic plant (Property). The plaintiff
claimed that at the time of the Liquidator's disposition,
Chairmakers and Colorclad were not the rightful owners of these
assets, and sought leave to sue the Liquidator personally for
conversion of the Property or, in the alternative, negligence.
Rationale and threshold of the Leave Principle
In his reasons, Almond J reviewed a number of cases which
highlight the basis of the Leave Principle and what is required of
a plaintiff in order to obtain such leave. His Honour made the
the rationale behind the Leave Principle is that "the
Court will protect its officers from 'spurious' litigation
and the integrity of the winding up process" 3
the integrity of the winding up process will be compromised
"if, for example, proceedings are initiated or continued
without any legal basis or prospect of success"
generally the Court will not allow the commencement of
proceedings against a liquidator unless the plaintiff can establish
a prima facie case 5 although other factors may
come into play 6
a plaintiff's delay in seeking leave to commence
proceedings can be a "powerful factor" in deciding to
refuse such leave. 7
The Leave Principle applied
In Armitage, the plaintiff contended that leave ought
to be granted for two, alternative reasons. Firstly, the plaintiff
argued that at the time of commencing the proceedings (September
2010) the Liquidator was no longer acting as official liquidator of
Chairmakers or Colorclad, as both had been wound up in 2008.
Therefore, according to the Plaintiff, there was no requirement
that leave be obtained. His Honour categorically rejected this
argument, aptly noting that if this were the case, potential
plaintiffs could avoid the Leave Principle by simply waiting for
the liquidator's external administration of an insolvent
company to end.
Secondly, the plaintiff argued that prima facie cases
of conversion and negligence had been established. His Honour noted
that it is for the applicant to satisfy the court that it has a
prima facie case against the Liquidator. His Honour then held that
the plaintiff had failed to do so, citing a number of deficiencies
in the plaintiff's evidence.
In addition to rejecting the plaintiff's two contentions,
the Court held that the plaintiff had not advanced any reasonable
excuse for his delay in commencing the proceedings. This delay
spanned just under six years which, not so coincidentally, was the
statutory limitation period within which the plaintiff was required
to commence the proceedings.
What's a Liquidator to do?
Unfortunately, beyond discharging one's duties with
appropriate skill and diligence, there is little a court appointed
liquidator can do to ensure they are afforded the protection of the
Leave Principle. Nevertheless, the decision in Armitage
should provide some comfort to Liquidators that in order for a
disgruntled party to issue proceedings against them, leave will be
required, as will prima facie evidence of a cause of action.
1Section 471B Corporations Act 2001
22011 VSC 419
3His Honour citing the judgment in Mamone
v Pantzer (2001) 36 ACSR 743, 749 
4His Honour citing the judgment in Sydlow
Pty (in liq) v T G Kotselas Pty Ltd & Ors (1996) 144 ALR
5Vink v Tuckwell (2008) VSC 100, 19
6Sydlow 159, 166
7Mamone v Pantzer 746-747
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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